GIRISHKUMAR RAMANBHAI PATEL V. INCOME TAX OFFICER, LUNAVADA

SCA/22840/2017

AI Insights

The case involves Girishkumar Bhulabhai Patel, who, along with other employees of Panchmahal District Co-operative Milk Producers Union Ltd, was accused of embezzling funds. The Income Tax Officer issued notices under Sections 147 and 148 of the Income Tax Act, 1961, to reopen the assessment for the Assessment Year 2010-11, and subsequently included the alleged embezzled amount as income from other sources. The petitioners challenged these actions, arguing that the notices and the subsequent assessment were based on unproven allegations and did not constitute valid grounds for tax assessment. The court agreed with the petitioners, emphasizing that mere allegations in an FIR do not suffice to treat the alleged embezzled amount as income.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 753656 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 06-03-2018
• Assessment Year: misc
• Other Referred Cases: GKN Driveshafts (India) Ltd. Vs. Income-Tax Officer and Others reported in 259 ITR 19
• Laws Referred To: Income Tax Act, 1961, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: VARUN PATEL
• Assessee Lawyers: BHARGAV KARIA
• Keywords: Assessment orders; Assessment Year 2010-11; Embezzlement; FIR; Income from other sources; Income Tax; Reopening of assessment
• Section: 147; 148; 142(1); 226

Judgement Text

"C/SCA/22839/2017 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 22839 of 2017 With R/SPECIAL CIVIL APPLICATION NO. 22840 of 2017 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE A.Y. KOGJE ====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ====================================== GIRISHKUMAR BHULABHAI PATEL Versus INCOME TAX OFFICER, LUNAVADA ====================================== Appearance: BHARGAV KARIA AND ASSO(6631) for the PETITIONER(s) No.1 MR VARUN K.PATEL(3802) for the RESPONDENT(s) No. 1,2 ====================================== CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE A.Y. KOGJE Date : 06/03/2018 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) Page 1 of 9 C/SCA/22839/2017 JUDGMENT [1.0] Draft amendment is allowed. Learned advocate appearing on behalf of the respective petitioners to carryout the same. [2.0] RULE in both the petitions. Shri Varun Patel, learned advocate waives service of notice of rule on behalf of the respondents in both the petitions. [3.0] In the facts and circumstances of the case and with the consent of the learned advocates appearing on behalf of the respective parties, present petitions are taken up for final hearing today. [4.0] By way of these petitions under Article 226 of the Constitution of India, respective petitioners have challenged the legality and validity of the notices dated 30/03/2017 and 29/03/2017 under Sections 147 and 148 of the Income Tax Act, 1961 issued by respondent no.1 herein for the Assessment Year 2010-11. Thereafter, the Assessment Orders have been passed, which is also challenged by way of amendment. [5.0] The facts leading to the present Special Civil Applications in nutshell are as under; [6.0] The respective petitioners were the employees of Panchmahal District Co-operative Milk Producers Union Ltd. According to the respective petitioners, as their income was below the taxable income, at the relevant time, they did not file the return of income for the Assessment Year 2010-11. However, thereafter, after a period of four years from the Page 2 of 9 C/SCA/22839/2017 JUDGMENT relevant Assessment Year, respondent no.1 served the impugned notices upon the respective petitioners dated 30/03/2017 and 29/03/2017 under Section 148 of the Income Tax Act. The respective petitioners thereafter filed the return of income. Respective petitioners received the notices under Section 142(1) of the Income Tax Act dated 17/08/2017 requiring them to attend the office of respondent no.1. It is the case on behalf of the respective petitioners and so stated in the petitions that in response to the aforesaid notices at Annexure A (under Section 148) and Annexure C (under Section 142(1), reply was given dated 31/08/2017 requiring respondent no.1 to furnish the reasons recorded to reopen the assessment. According to the respective petitioners, they furnished requisite information in the said communication stating that they have no other income from business in the relevant Assessment Year 2010-11. Instead of providing reasons recorded in the notices under Section 128 of the Income Tax Act, respondent no.1 vide letter dated 27/11/2017 informed the respective petitioners that as per the information available with the office of respondent no.1, Panchmahal District Co-operative Milk Producers Union Ltd has lodged FIR, being CR No. I-98/2010 dated 15/09/2010 for embezzlement of Rs.5,43,683/- against the respective petitioners alongwith five other employees and out of which the share of the respective petitioners would come to Rs.5,43,683/- each, and therefore, it was stated that considering the fact that offence has taken place and the FIR is lodged, respective petitioners were required to show cause as to why, pending assessment proceedings, they should not be penalized for embezzlement of an amount of Rs.5,43,683/- as income from other sources and the respective petitioners were asked to remain present Page 3 of 9 C/SCA/22839/2017 JUDGMENT before respondent no.1 on 29/11/2017. It is the case on behalf of the respective petitioners that thereafter they remained present before respondent no.1 on 29/11/2011 and submitted the letter contending that the FIR is not proved and the Court has not decided the case till date and no addition can be made on the basis of the FIR lodged against the respective petitioners. Thereafter, the respective petitioners preferred the present petitions challenging the impugned notices under Section 148 of the Income Tax Act. This Court issued notice in both the petitions upon respondent no.1 on dated 20/12/2017 making it returnable on 31/01/2018 and also granted the ad- interim relief staying further proceedings pursuant to the impugned notices dated 31/03/2017 and 29/03/2017 issued under Section 148 of the Income Tax Act in relation to the Assessment Year 2010-11. However, it appears that before the aforesaid interim relief could be served, respondent no.1 has finalized the assessment making the addition of Rs.5,43,683/- and treated the same as income from other sources, and therefore, the impugned notices under Section 148 of the Income Tax Act and the subsequent Assessment Orders are the subject mater of these petitions. [7.0] Shri Bhargav Karia, learned advocate appearing on behalf of the respective petitioners has vehemently submitted that as such though the respective petitioners asked the reasons for reopening of the assessment in exercise of powers under Section 148 of the Income Tax Act and though the same were required to be furnished, as per the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. Income-Tax Officer and Others reported in 259 ITR 19 and even the subsequent catena of decisions of Page 4 of 9 C/SCA/22839/2017 JUDGMENT this Court, the Assessing Officer did not furnish any reasons to reopen the assessment in exercise of powers under Section 148 of the Income Tax Act, which, as such, were beyond the period of four years. It is further submitted by Shri Karia, learned advocate appearing on behalf of the respective petitioners that even otherwise the impugned Assessment Orders by which the Assessing Officer has directed to include the amount of Rs.5,43,683/- into the total income of the respective petitioners for the Assessment Year 2010-11 and the same be treated as income from other sources, the same is absolutely illegal and most arbitrary. It is submitted that the aforesaid amount is directed to be included into the total income for the Assessment Year 2010-11 and the same is to be treated as income from other sources solely on the basis of one Criminal Complaint /FIR lodged by the employer alleging misappropriation of the amount by the respective petitioners and five others. It is submitted that merely on the basis of some FIR filed by the employer alleging misappropriation of the amount, the same cannot be said to be the income from other sources and the same cannot be directed to be included in the total income of the respective petitioners - assessee. [7.1] It is submitted that even the impugned Assessment Orders suffer from arbitrariness and /or is illegal inasmuch as the employer lodged the FIR against in all seven persons, including the respective petitioners for embezzlement of Rs.38,05,781/- and dividing the same by seven, the Assessing Officer has included Rs.5,43,683/- into the income of the respective petitioners - assessee for the Assessment Year 2010-11 and the same is directed to be treated as income from other sources. It is submitted that such Assessment Orders Page 5 of 9 C/SCA/22839/2017 JUDGMENT are not sustainable at all. It is submitted that by no stretch of imagination the aforesaid amount can be said to be income from other sources and /or even the income of the assessee. It is submitted that mere filing of the FIR is not sufficient to consider the alleged embezzlement of the amount to be the income from other sources. Making the above submissions, it is requested to allow the present petitions. [8.0] Shri Varun Patel, learned advocate appearing on behalf of the Department has opposed the present petitions solely on the ground that as subsequently the Assessment Orders have been passed, the respective petitioners preferred Appeal before the Deputy Commissioner, and therefore, the present petitions are opposed on the ground of availability of alternative statutory remedy available by way of Appeal. However, Shri Varun Patel, learned advocate appearing on behalf of the Department was called upon to justify the inclusion of the amount of Rs.5,43,683/- into the total income of the respective petitioners for the Assessment Year 2010-11 and how the same came to be treated as income from other sources. As such, the learned advocate appearing on behalf of the Department is not in a position to justify the same and in fact is not able to justify the same. He is also not in a position to dispute that as such though the reasons to reopen the assessment were asked, the same has not been furnished. However, it is submitted that as the limitation was running, and therefore, the orders of assessment have been passed, which have been passed after issuing the notices upon the respective petitioners. Page 6 of 9 C/SCA/22839/2017 JUDGMENT [9.0] Heard the learned advocates appearing on behalf of the respective parties at length. At the outset, it is required to be noted that in the present petitions initially the respective petitioners challenged the notices under Section 148 of the Income Tax Act to reopen the assessment for the Assessment Year 2010-11 issued in exercise of powers under Section 148 of the Income Tax Act. Thereafter, the respective petitioners filed the returns but simultaneously also asked the reasons to reopen the assessment. However, though required, as per the decision of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (Supra), Department did not furnish the reasons. Thereafter the Assessment Orders have been passed treating embezzlement of amount of Rs.5,43,683/- as the income from other sources for the Assessment Year 2010-11. Apart from the fact that the orders of assessment were passed during pendency of the present petitions even the impugned Assessment Orders, more particularly, treating the amount of Rs.5,43,683/- as income from other sources for the Assessment year 2010-11 is not sustainable at all despite availability of statutory alternative remedy by way of statutory Appeal. We have entertained the present petitions, which, as such, were preferred at the stage of notices under Section 148 of the Income Tax Act and before the orders of assessment were passed. [9.1] Now so far as the impugned Assessment Orders are concerned, by the impugned orders the Assessing Officer has directed to include Rs.5,43,683/- into the total income of the respective petitioners treating the same as income from other sources solely on the ground that Panchmahal District Co- operative Milk Producers Union Ltd. - employer of the Page 7 of 9 C/SCA/22839/2017 JUDGMENT respective petitioners had lodged the FIR, being CR No. I- 98/2010 dated 15/09/2010 for embezzlement of Rs.38,05,781/- jointly against the respective petitioners and five other employees and out of which the share of the respective petitioners is worked out to Rs.5,43,683/- each. How the aforesaid amount of Rs.5,43,683/-, which is alleged to have been embezzled by the respective petitioners, can be treated and /or considered as income from other sources. First of all the trial is still pending. It has not been established and proved that the respective petitioners as such had embezzled and /or misappropriated any amount. There is no adjudication by any competent Court. Merely and solely on the basis of the FIR filed by the employer alleging misappropriation straightaway the alleged misappropriation cannot be considered /treated as income from other sources. Under the circumstances, the impugned Assessment Orders treating the alleged embezzlement amount of Rs.5,43,683/- as income from other sources and the Assessment Orders on that basis cannot be sustained and the same deserves to be quashed and set aside as the same is most arbitrary, illegal and contrary to the provisions of the Income Tax Act. As observed hereinabove, learned advocate appearing on behalf of the Department is not in a position to justify the inclusion of such an amount and /or treating the aforesaid amount as income from other sources for the Assessment Year 2010-11. [10.0] In view of the above and for the reasons stated hereinabove, both the petitions are allowed. Respective Assessment Orders in case of the respective petitioners for the Assessment Year 2010-11 insofar as treating the income of Rs.5,43,683/- in case of each petitioners as income from other Page 8 of 9 C/SCA/22839/2017 JUDGMENT sources and directing to include the same into the total income of the respective petitioners for the Assessment Year 2010-11 are hereby quashed and set aside. Rule is made absolute accordingly in each matter. There shall be no order as to costs. (M.R. SHAH, J.) (A.Y. KOGJE, J.) siji Page 9 of 9 "